DEFENCE PRODUCTION PROGRAMME

My Lords, I should like to ask leave of the House to interrupt business in order to make a statement which is also being made in another place by my right honourable friend the Prime Minister.

Your Lordships are already aware that during the past months the Government have been engaged upon a thorough review of the defence programme in all its aspects. This review, which is still in progress, must, of course, take fully into account the results of the Ministerial meeting of the North Atlantic Council to be held in ten days' time. Our conclusions will be fully set out in the Defence White Paper for 1953, which, in accordance with previous practice, will be issued in February. However, certain decisions have been made affecting the defence production programme which must be put into effect now if they are to produce the results desired. I have therefore thought it right to inform your Lordships at this stage of the broad effect of these decisions.

We made it clear at the Lisbon meeting of the Atlantic Council that our ability to carry out our programme in full, and to make our contribution to the forces of the North Atlantic Treaty Organisation, depended on the solution of our financial and economic problems and especially the balance of payments problem. This was well understood and accepted by our Allies. In spite of the successful measures which the Government have taken to strengthen our financial position, these problems are not yet solved, and this is—I will not say a decisive, but at any rate an important factor in determining the magnitude of our defence effort. It must be remembered that our effort has to provide not only for the defence of these Islands and for our contribution to common defence within N.A.T.O., but also for our worldwide commitments where we are heavily extended.

The Defence Budget for this year which was presented in a White Paper last February, amounted to £1,462 million, of which something under £600 million was for production. To this must be added
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certain Supplementary Estimates. If the three-year rearmament programme drawn up by the late Government had been carried through in full, expenditure on defence at end-1951 prices would have been in the present financial year over £1,650 million, and would have risen in 1953 to more than £1.800 million. Within these totals, expenditure on production would have been over £725 million this year and over £850 million next year. Moreover, much of this increased burden would have fallen on the engineering industry, on which we depend so much for the vitally needed expansion of our export trade.

In the light of these considerations, the Government have come to the conclusion that we must prevent any substantial rise above this year's high level of expenditure on defence production. Some curtailment must, therefore, now be made which will involve the cancellation or modification of contracts already placed. The firms concerned will be fully informed of these changes by the appropriate production Departments. The reductions will so far as possible be brought about by spreading deliveries of equipment over a longer period. They will prevent further increases in the amount of labour and materials used for defence production rather than reduce the amount of these resources now devoted to this purpose. It will, however, not be possible to solve the problem entirely by spreading forward into future months or years. This applies in particular to aircraft. We shall somewhat reduce the production of types now in service, but we shall continue to press forward as rapidly as possible with the introduction of the newer and still more advanced types. Moreover, in view of the progress which has taken place in the evolution of the medium bomber, we are able to curtail to some extent earlier plans for re-equipment with light bombers.

The changes which we are making will not have any serious effect on industry as a whole, but they may well cause local difficulties. Happily, these difficulties are being partially alleviated by the orders we are receiving for defence equipment from our N.A.T.O. allies, the Commonwealth and other friendly countries. These will not only contribute to the security of the free world, but will also help maintain the war potential of British industry and help the balance of
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our exports. I should like those firms, large and small, who have given such ready help by taking on rearmament work when they already had full order books, to know how much Her Majesty's Government valued their co-operation and to understand with what regret we shall now have to ask them to adjust their plans. I am sure that they will not be deterred by any disappointment of this kind from continuing to do their utmost, whether as employers or workers, to provide the Fighting Services with the equipment they need.

These decisions have been taken in the knowledge that it is on a satisfactory development of our economic position, and particularly our balance of payments, that the maintenance of our future defence effort must depend. The decisions, of course, in no way imply any weakening in Her Majesty's Government's resolve to carry through a defence programme which will enable this country to defend itself, to fulfil its commitments overseas, and to take its full share, militarily and industrially, in the common effort of the North Atlantic Treaty Organisation.

My Lords, we are all grateful to the noble and gallant Earl the Minister of Defence for making this statement, a statement which is very important and which will need very close study. I should like to ask the noble Earl just two or three questions. I am sure that it is the desire of all your Lordships that the closest possible relationship should be continued with the North Atlantic Treaty Organisation and, indeed, the North Atlantic Council. It is rather surprising that the Government have made an announcement such as has been made this afternoon, within ten days of the Ministerial meetings of the North Atlantic Council, while at the same time we are informed that the review, which, of course, is inevitable, is still in progress. I should like to know whether these proposals can in any way be modified by any discussions which take place at the North Atlantic Council. If so, I hope that the noble Earl will see to it that before the annual defence White Paper is issued, there will be published a White Paper giving full details of any discussions which take place.

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I should also like to ask the noble Earl whether we can expect very heavy Supplementary Estimates this year, particularly in view of the figures which are given in this Estimate, and whether we can assume that the figure of defence expenditure during the current year is unlikely to be materially changed next year. We are a little concerned, of course, about the delay in the delivery of equipment to the Services. Nevertheless, I should remind your Lordships that the late Government were themselves in a similar position, and it was always maintained that the defence programme must have some relation to our economic situation and our balance of payments. I would say, in conclusion, that we thank the noble Earl for his statement, and that we shall certainly give close consideration and study to the proposals which have been made.

My Lords, in answer to the question of the noble Viscount, may I say that, of course, I cannot anticipate N.A.T.O., but I do not foresee that any great changes will come about from our meetings in Paris on the 15th of this month—no changes which will run counter to the changes which we ourselves now contemplate. In fact, I feel sure that the N.A.T.O. Council would approve of any adjustments we make in our programme which, after all, are designed only to strengthen the basis on which the whole programme rests. As regards the issue of the White Paper, I am not in a position to say "Yes" or "No" to that, but I can assure the noble Viscount and the House that every consideration will be given to the issue of such a Paper if it is necessary.

The noble Viscount asked about Supplementary Estimates. I am not experienced in these matters, but I think I am right in saying that such Supplementary Estimates as there may be for the Service Departments will be of an ordinary and normal nature.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

My Lords, I thank the noble Earl for his reply. With regard to this question of reducing the production section of costs for next year, which is to be done by what he described as "spreading over," can he tell me whether the position at the end of that operation will be that the units of equipment delivered for the use of the armed Forces
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will be reduced or will be the same? What is the position? Is this, in the ultimate, a definite reduction in the volume of armaments and equipment to the Forces?

That is a very difficult question to answer, because the whole thing is a most complicated matter. I suppose, in a sense, that the actual volume of production may be somewhat less. On the other hand, the type of equipment we shall get will be superior. That is our aim. It is not a question of masses of stuff; it is a question of quality, and we are looking for quality rather than quantity. We can afford to spend only a certain amount on all this; and, as your Lordships will remember, when the late Government introduced their programme they agreed on a certain figure and put forward certain orders to firms to produce thisequipment—and quite rightly so. If they had delayed until there was a likelihood of there being no changes whatsoever, it would have resulted in nothing being started. But the late Government were very energetic and they ordered a great deal of stuff, thank goodness! But now changes have to be made and certain cancellations have to follow. I hope that that has answered the noble Viscount's question.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

I do not want to hold up the proceedings, but as my noble friend Lord Hall said, this matter is of very great importance. It will have far-reaching repercussions on the other countries concerned. Does it mean that although you may have greater striking power and speedier weapons, you will have to maintain fewer divisions, fewer squadrons in the Air Force, and fewer commissioned ships? Whilst I do not wish to pursue the matter too far, I recall that I asked in the last Defence debate that we should have a stocktaking fairly soon. I realise that the Government have been diligently applying themselves to this matter, but we ought to see whether we can stabilise the position. If there are to be any changes in other countries corresponding to ours, I hope that information will be given to Parliament as soon as the Conference in ten days' time is over.

I hope that noble Lords opposite will forgive me if I do not say anything more
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to-day. There is still the White Paper to come out, and there will be many opportunities, when it appears, for a full debate on this matter. If I am not overstepping my authority I would say that of course we will always give noble Lords opposite, as early as we possibly can, the fullest information on important results which may come out of N.A.T.O. meetings.